Nvidia Corp (NASDAQ:NVDA, XETRA:NVD) shares rose 2.9% on Monday as Bank of America reiterated its Buy rating and kept the chipmaker as its top sector pick, arguing that a stronger focus on shareholder returns could become the next major catalyst for the stock.
The brokerage said Nvidia’s vast free cash flow generation and discounted valuation relative to other “Magnificent Seven” peers leave room for a meaningful re-rating if the company boosts dividends or buybacks.
“With the bulk of ecosystem investments likely complete, Nvidia could pivot towards shareholder returns,” Bank of America analysts wrote, adding that higher cash returns could broaden ownership among dividend and income-focused funds, ease concerns over large acquisitions or vendor financing, and signal confidence in the durability of the company’s growth.
The analysts noted that Nvidia trades at less than 20 times calendar 2027 estimated price-to-earnings and enterprise value-to-free-cash-flow multiples, compared with an average 41.5 times for its Mag-7 peers.
They estimate Nvidia could generate more than $400 billion in free cash flow across calendar 2026 and 2027, which is roughly equivalent to the combined free cash flow of Apple and Microsoft over the same period, yet it trades at more than a 50% discount to peers on valuation metrics and at about a 30% lower market cap-to-free-cash-flow multiple.
Bank of America said investor concerns over growth durability and capital allocation have weighed on the stock’s valuation despite Nvidia’s dominant position in artificial intelligence infrastructure.
The report also highlighted two additional headwinds: stock positioning and rising competition.
Nvidia now accounts for about 8.3% of the S&P 500, above prior peaks for Apple and Microsoft, which the analysts said may limit incremental ownership among benchmarked investors. Competition is also increasing from merchant chipmakers such as Advanced Micro Devices and custom AI chips developed by Broadcom, Alphabet’s Google and Amazon Web Services.
Still, the bank expects Nvidia to maintain more than 70% of AI value share, supported by its broad product portfolio, software ecosystem, supply chain investments and enterprise adoption.